9 Signs You May Be Living Above Your Means (and What to Do About It)

One of the worst financial mistakes you can make is living above your means. It doesn’t matter what your salary is, you need to spend less than you make to get ahead financially.

Unfortunately, living beyond your means is a common problem in our society. It’s easy to buy things on credit and get a false sense of financial security.

Living within or below your means doesn’t force you to deprive yourself. You simply need to prioritize and take control of where your money is going.

In this article, we’ll look at some warning signs that may indicate you’re living above your means. If several of these warning signs are evident in your own life, consider making some changes in order to improve your financial situation.

Signs That You’re Living Above Your Means

1. You Don’t Know How Much You Spend Each Month

If you’re not sure how much money are you spending each, there is a good chance that you’re actually spending more than you think. It’s really easy to underestimate your total expenses.

Many people cringe at the thought of a budget and prefer to not think about how much money they’re spending. Ignorance about your spending habits won’t make the problem go away, it will only make things worse in the long run.

The good news is that this problem is easy to fix if you’re living beyond your means. It only takes a small amount of effort to track your expenses and stay on top of your finances.

2. Your Credit Card Balances are Increasing

Credit card debt is one of the biggest signs of living beyond your means. Those expenses that you can’t really afford will typically go on a credit card. Checking your credit card statements is an easy way to see if you’re living beyond your means.

Hopefully, you either have zero credit card debt, or your balances are at least decreasing. Zero debt is, of course, ideal. But simply having some credit card debt isn’t necessarily a sign that you’re currently living beyond your means. You may be working hard to eliminate the debt, so the recent trend of your balances is probably a better indicator than simply the presence of debt.

3. You Don’t Have an Emergency Fund

The emergency fund is an important part of your financial plan. This money can be used to pay your bills in the case of something unexpected, like the loss of your job, major health issues, or unexpected family emergencies.

Without an emergency fund, you’ll likely rack up debt in these types of situations. You may also risk foreclosure, eviction, having a car repossessed, or the inability to pay your other monthly bills.

The amount you should have in emergency savings will depend on your work and family situation, but in general, you should have at least enough money to cover your living expenses for 3-6 months. If you’re self-employed or supporting a family on a single income, you should be at the high end of that range.

4. You’re Not Saving at Least 10% of Your Income

According to the Bureau of Economic Analysis, the average savings rate is only about 5%.

At a minimum, you should be saving at least 10% of your take-home (after tax) income. Really, 15-20% would be more ideal, but 10% is a good place to start.

Saving money may seem impossible, but it’s probably a lot more realistic than you think. Contributions to a 401(k) or Traditional IRA can reduce your taxable income, so it can also decrease the amount that you pay in taxes.

If finances are tight and you’re having trouble finding ways to save and invest, see this list of frugal living tips that will give you plenty of practical suggestions. You’ll be able to cut your expenses and have more left over to save.

5. You Don’t Have Any Money Left at the End of the Month

If you’re constantly running out of money before the end of the month, or before your next paycheck, that’s a sign that you are living above your means. You may need to focus on cutting back and your spending habits may need to change.

If you’re on top of your finances and living within a budget that is appropriate for your income, you shouldn’t consistently have issues with going through your money too quickly. The emergency fund and savings are important for those times when something comes up unexpectedly.

6. You Worry About Small Expenses and Being Able to Pay the Bills

Money is a cause of stress for a lot of us. But if you find yourself worrying about not being able to make your monthly payments, it could be a sign that you’re not managing your money effectively. Likewise, if you worry even about small expenses, you may need to make some adjustments.

Living within your means won’t make you immune to money worries, but it should help you to prevent fear about your electricity being shut off or constantly worrying about the balance of your credit cards.

7. Your Credit Score is Below 650

Your credit score is an indicator of your financial health. It’s very possible to have a low-to-moderate income and still have a high credit score. And it’s also possible to have a high income and a low credit score. How you manage your money is more important than how much you make.

The average credit score for Americans is 714, according to Experian. If your score is below 650, it may be a sign that you are living above your means or not managing your money as well as you should be.

A low credit score could be caused by late payments on credit cards and other debt.

8. You Spend More Than 28% of Your Income on Housing

As a general rule of thumb, you should not spend more than 28% of your gross income on housing expenses. Your housing expenses could be rent, or the total of your monthly mortgage payment, property taxes, and homeowner’s insurance.

Creditors and lenders will often use the 28/36 rule in determining your eligibility for a loan or credit. The rule states that you should not spend more than 28% of your monthly income on housing, or more than 36% percent of your income on the total of housing and other debt. Anything higher and you run the risk of living beyond your means.

9. Other People’s Opinions Influence Your Financial Decisions

If you’re overly concerned about what others think of you, it could lead to bad financial decisions and unnecessary purchases with credit cards. Don’t buy a house, car, clothes, gadgets, or anything else to impress other people or just so you can post a picture on social media. Don’t take expensive vacations or run up big tabs at the bar because of an appearance you want to create.

To manage your money wisely and effectively, you’ll need to do what’s best for you. Don’t be afraid of what people might think, and don’t worry about impressing others by spending money.

How Many of These Warning Signs Apply to You?

Looking at the list of warning signs above, how many of them are relevant to you? If you struggle in these areas, changes to your lifestyle may be needed.

What You Can Do About It

If the warning signs indicate that you have an issue, here are a few steps to correct the situation.

1. Create a Budget

The most important thing you can do for your personal finance is create a budget that will dictate how you spend your money. Creating a budget may sound intimidating, and you may not know where to start.

Don’t worry. It doesn’t need to be hard. See my article How to Create a Budget That Works and my list of budget categories to help lead you through the process.

Creating a budget is a great first step, but you’ll also need to track your expenses to know that you’re actually staying within the budget.

2. Start an Emergency Fund

If you don’t already have an emergency fund, start one today. Work on adding money to it each month until you have enough to cover 3-6 months of living expenses.

If you already have emergency savings, but it’s not big enough money to cover 3-6 months of living expenses, prioritize adding to it each month.

3. Choose a Debt Payoff Approach

If you currently have debt, aside from a mortgage, you should make debt payoff a top priority. Once you have no more monthly payments on credit cards, student loans, personal loans, car loans, or other debt, you’ll have more money to save each month. Paying off debt also means you can stop wasting money each month on interest payments.

Two of the most common approaches to paying off debt are the debt snowball and the debt avalanche. With the debt snowball approach, you will attack your smallest debts (in terms of balance) first. With the debt avalanche approach, you will pay off the debt with the highest interest rates first. 

Once all your other debt is paid off, you may choose to pay off your mortgage, but that’s really a matter of personal preference.

4. Automate Your Savings

One of the best to ensure that you’re saving enough is to make your savings automatic. Do this now and you’ll benefit in the long term.

The easiest way to do this is to set up 401(k) contributions through your employer’s HR office. Your contributions will come out of each paycheck automatically before you even see the money. That means that you won’t forget to save it, or spend the money instead of saving it.

You can also automate transfers to a savings account or other types of financial accounts.

5. Start a Side Hustle

Last but not least, you can improve your financial situation by making more money. There are many different side hustle ideas to make money without relying on your job. A side hustle can be a great way to make money to help with paying the bills, or to give yourself more money each month to save.

Final Thoughts on Living Beyond Your Means

How you manage your money is far more important to your financial health than how much money you make. The signs discussed in this article will help you to know if you are living above your means, and if so, you can follow the steps listed to correct the issue.

The key is to recognize the issue that you’re having. Don’t ignore it and hope that it goes away. Anyone can take care of their money with a little bit of effort and some desire to set yourself up for a better future.